Moody’s Investors Service cut its outlook on Chinese sovereign bonds to negative, highlighting growing global concerns about debt levels in the second-largest economy.
Moody’s lowered its outlook to negative from stable, while maintaining an A1 long-term rating on the country’s sovereign bonds, according to a statement. China’s use of fiscal stimulus to support local governments and its growing housing crisis are posing risks to the country’s economy, Moody’s said.
The Chinese government reacted shortly after the change of outlook was announced, saying it was “disappointed” with Moody’s decision and that the country’s economy “will be highly resilient and have great potential”. The impact of the housing crisis is well controlled, China’s Ministry of Finance said in a statement.
China Chengxin International Credit Rating Co., a leading domestic credit rating agency, said the outlook for the country’s sovereign credit was stable, adding that the government has “ample” room to control rising debt risks when compared to Western countries, according to a statement on Tuesday.
The change in Moody’s thinking comes at a time when the worsening real estate crisis in China triggers a shift towards fiscal stimulus, with the country increasing its debt as the main measure to strengthen its economy. This has raised concerns about the country’s debt levels, with Beijing on track for record bond issuance this year.
China’s economy has struggled to gain traction this year as the recovery from restrictive Covid Zero policies proved weaker than expected and the housing crisis deepened. Last week’s data showed that industrial and services activity declined in November, reinforcing the belief that more government action is needed to support a faltering recovery.